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UPDATE4 Ofcom and BT Reach Voluntary Agreement on Openreach’s Future

Friday, March 10th, 2017 (7:38 am) by Mark Jackson (Score 3,090)
tank pointing at bt openreach engineer long

After an exhausting year of disagreements it’s today been announced that BT and the UK telecoms regulator have finally reached an agreement on the future of the operator’s network access division, which means that Ofcom won’t need to force through Openreach’s “legal separation“.

The situation began last February after Ofcom published their Strategic Review (full summary), which aimed to build a new framework for the next decade of telecoms and broadband regulation in the United Kingdom. The review noted that Openreach still had an “incentive to make decisions in the interests of BT, rather than BT’s competitors, which can lead to competition problems” and that the BT had failed to “sufficiently” consult rival ISPs, such as those that piggyback off their network, on future “investment plans that affect them.”

Openreach was also accused of having under-invested in its network to the tune of “hundreds of millions of pounds“. The newly appointed chairman of Openreach, Mike McTighe, recently appeared to support this claim by agreeing that the operator should have invested more into their national infrastructure.

A further Strategic Review update followed in July 2016 (here) and then another one in November 2016 (here). In short, Ofcom aimed to boost competition by giving rivals greater access to BT’s infrastructure and fostering an independent governance structure for Openreach, as well as tougher minimum service quality standards, new consumer protection measures and better information sharing.

However until now there has been no voluntary agreement because of several outstanding issues. One of the roadblocks was BT’s huge pension pot and related deficit, with the operator being concerned about the risks and costs of moving staff and pension liabilities to the “new” company.

The other problem related Ofcom’s demand for Openreach to “become a ring-fenced, ‘wholly-owned subsidiary’ of BT Group, with its own purpose and board members.” As part of that Openreach would be allowed to have confidential discussions with its customers (i.e. without oversight by BT). However no CEO likes to lose full control over part of their business, even if the BT board would still have a say.

Ofcom had warned that it would force its changes through if no agreement could be reached but that is no longer necessary as the two have managed to find some common ground. The regulator said that “BT has agreed to all of the changes needed to address [our] competition concerns.” Openreach will now become a “distinct company with its own staff and management, together with its own strategy and a legal purpose to serve all of its customers equally.”

How the “new” Openreach will work

* Openreach will become a distinct company. Openreach will be incorporated as a legally separate company within BT Group, with its own ‘Articles of Association’. Openreach – and its directors – will be legally required to make decisions in the interests of all Openreach’s customers, and to promote the success of the company.

* The Openreach Board will run the company. The Openreach Board that BT has already established in recent weeks, which has a majority of directors independent of BT, will become the Board of the new company. It will be truly responsible for running Openreach, under a new governance agreement.

* A separate strategy and control over budget allocation. Openreach will develop its own strategy and annual operating plans, within an overall budget set by BT Group.

* Executives will be accountable to the new Board. Openreach’s Chief Executive will in future be appointed by, and accountable to, the Openreach Board. BT Group will be able to veto appointment of the Openreach CEO, but only on notification to Ofcom. The Openreach Chief Executive will then be responsible for other executive appointments, and will report to the Openreach Chair – with a secondary accountability to the Chief Executive of BT, limited to necessary legal, fiduciary or regulatory obligations.

* Staff will work for Openreach. The new Openreach will directly employ all its 32,000 staff, who will be transferred across from BT. This will allow Openreach to develop its own distinct organisational culture.

* Assets will be controlled by Openreach alone. Openreach will have control of those assets – such as the physical access network – required to deliver on its purpose. The Openreach Board will make decisions on building and maintaining these assets: BT will hand these powers to Openreach, while retaining a title of ownership.

* Consultation and confidentiality for Openreach’s customers. Openreach will be obliged to consult formally with customers such as Sky Broadband, TalkTalk and Vodafone on large-scale investments. In future, there will be a ‘confidential’ phase during which customers can discuss ideas without this being disclosed to BT Group, as well as further protections for confidential customer information.

* Distinct branding. BT will be removed from Openreach branding, to reflect these changes and the company’s greater independence.

On BT’s Pensions it’s noted that to implement this agreement with the “smallest possible effect” will require that the existing Crown Guarantee (i.e. this requires the Government to foot the bill in the unlikely event that the company should be wound up) would need to be maintained for Openreach staff who are members of BT’s pension scheme. This will require the Government to change their existing legislation.

The deal also means a change for Northern Ireland. Historically, Openreach has existed in Great Britain, but not in Northern Ireland. Instead, BT Northern Ireland has adapted its processes to closely reflect those of Openreach, which Ofcom says is an “arrangement that has generally worked well“.

However today’s deal will extend the benefits of the Openreach changes to BT Northern Ireland – including greater independence, confidentiality and independent branding. BT Northern Ireland will also remain able to take account of specific local circumstances and opportunities.

Sharon White, Ofcom Chief Executive, said:

“This is a significant day for phone and broadband users. The new Openreach will be built to serve all its customers equally, working truly independently and taking investment decisions on behalf of the whole industry – not just BT.

We welcome BT’s decision to make these reforms, which means they can be implemented much more quickly. We will carefully monitor how the new Openreach performs, while continuing our work to improve the quality of service offered by all telecoms companies.”

Gavin Patterson, BT Chief Executive, said:

“I believe this agreement will serve the long-term interests of millions of UK households, businesses and service providers that rely on our infrastructure. It will also end a period of uncertainty for our people and support further investment in the UK’s digital infrastructure.

This has been a long and challenging review where we have been balancing a number of competing interests. We have listened to criticism of our business and as a result are willing to make fundamental changes to the way Openreach will work in the future.”

Ofcom states that their new model for Openreach will also be supported by “careful, continual monitoring to ensure it is effective“. As part of this, BT will provide Ofcom with additional transparency on the nature of interactions between the new Openreach and the rest of BT Group.

The agreement will also necessitate the transfer of around 32,000 employees, under TUPE regulations, which will be one of the largest such transfers in UK corporate history. It will take place once the agreement has been implemented and pension arrangements are in place for these employees. Under the agreement, Openreach will manage and operate its assets and trading but ownership of those assets and trading will remain with BT.

We should point out that Openreach has already begun to introduce many of the proposed changes, such as by establishing a new independent board and separating some of their other work practices. However there may be some disappointment that today’s deal does not appear to have encouraged a greater roll-out of “ultrafastFTTP services than the currently proposed 2 million premises by 2020 (mostly businesses and new builds).

It’s important to recognise that most of major changes under this agreement won’t have a huge impact on consumers in the short to medium term. However, over the longer term, Ofcom hopes that fostering greater independence and competition at the infrastructure level will deliver a more diverse and flexible market for better / faster digital connectivity.

The Government’s recent decision to push fresh investment towards alternative ultrafast fibre optic broadband providers (here and here) appears to form part of the same approach, although it takes time to grow new networks and copper line based technology will still be around for a long time to come.

Crucially today’s changes aren’t a magic quick-fix for the economic challenges of getting such connectivity into rural areas and indeed such locations will, with a few exceptions, remain last on the list to benefit. But given enough time even they may benefit.

The commitments that BT has notified to Ofcom are available on this page http://www.btplc.com/UKDigitalFuture/ and the regulator has said that they will shortly publish further detail on how today’s agreement addresses their competition concerns, together with proposals to release BT from its previous undertakings around Openreach once the new commitments are fully in place.

It may be worth keeping tabs on BT Group’s share price this morning..

UPDATE 8:01am

The first comment on today’s deal has come from Sky (Sky Broadband), although we’ve put out requests from quite a few of the big players so expect a lot more to follow.

A Sky spokesperson said:

“This is a welcome step that we have long called for on behalf of our customers.

A more independent Openreach is a step towards delivering better service to customers and the investment that the UK needs.

It’s important that today’s agreement is now implemented by BT in good faith and without delay.”

UPDATE 8:36am

Now one from TalkTalk.

Dido Harding, TalkTalk’s CEO, said:

“We welcome the agreement to create a legally separate Openreach. The new company will be better placed to deliver the improved investment and service that consumers and businesses deserve. This deal will require robust Ofcom monitoring and enforcement to ensure it delivers the improvements the regulator expects.

We hope this is the start of a new deal for Britain’s broadband customers, who will be keen to see a clear timetable from Openreach setting out when their services will improve.”

UPDATE 10:58am

Cityfibre’s turn.

Mark Collins, CityFibre’s Director of Strategy and Policy, said:

“The real story here is the UK’s shocking ‘fibre gap’. Whilst it is welcome that these time-consuming negotiations seem to be at an end, there is nothing in this announcement to suggest Openreach will now start to build the fibre infrastructure this country needs. Ofcom’s focus needs to shift to encouraging alternative fibre builders to do the things Openreach can’t or won’t do – whatever its legal status.

CityFibre is well placed to take on that challenge and to meet Ofcom’s strategic objective of reducing the UK’s reliance on Openreach to get the job done. The substantial Government funding for fibre announced in the budget this week will help to accelerate our own full fibre rollout programme.”

We wouldn’t describe £600m as “substantial Government funding” when talking about FTTP/H networks because it could take tens of billions to blanket the country with it. A good improvement, but a lot more will be needed.

UPDATE 12:30pm

No beating around the bush from Virgin Media today.

Tom Mockridge, CEO of Virgin Media, said:

“Openreach is just the same old snail’s paced network with a new shell. Call it what you like but it’s still BT, four times slower than Virgin Media.”

Oh and they also tweeted this..

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64 Responses
  1. FibreFred

    “which means that Ofcom won’t need to force through Openreach’s “legal separation“

    Maybe they knew they couldn’t win hence the agreement

    • NGA for all

      The perception that Ofcom lost or this is a set of unproven expensive cosmetic changes creates its own problem.

      The DCR was not used to pin how much FTTP Ofcom had in mind, it just wanted ‘more’.

    • FibreFred

      More could come from other big players

      Doesn’t look like it will happen though

  2. FibreFred

    So based on the complaints from the other providers what we should see now (announcements today?) that the cash floodgates of Sky/TalkTalk and Vodafone will open and the big FTTP deployment begins.

    Right?

    Because this is what they wanted and were waiting for?

    • I recall the suggestions of investment from Sky/TalkTalk etc. would have required a complete split from BT, with rival ISPs then being able to invest into some degree of direct ownership or control of Openreach and then pushing it to do FTTP. We haven’t got that today, it’s legal separation.

      Mind you I too have my doubts about whether there really would have been a huge FTTP investment splurge even if TT/Sky had got the most extreme outcome they wanted.

    • AndyH

      I’m confused. I thought an independent Openreach would suddenly mean billions of money flowing in from new investors for FTTP deployment?

    • This is what Sky said in 2015 when we asked them:

      “We don’t agree that an independent Openreach would struggle to fund investment in delivering FTTP. As a standalone FTSE 100 company, Openreach would be highly attractive to long-term investors. Its key focus would be on investing in the network, and delivering high-quality services to its users – no longer subject to all the other investment and management priorities of BT Group.”

      Today we have legal separation but I don’t believe that reflects the complete split that Sky/TT were talking about for attracting investment.

    • Steve Jones

      None of this changes the economics. Given that it will be BT Group setting the budget and financial targets we’ll see how much would change. Some of that will include cash flow for dividends and funding the pension deficit. I also wonder what will happen with borrowings. Is this new Openreach company going to be able to borrow on its own account of will it (as with what happened with what was then Cellnet) borrow money from BT Group and pay interest (something that was done with Cellnet as BT Groups could borrow more cheaply).

      Also, on that subject, will Openreach have responsibility for financing any of the current group debt?

      All this stuff matters – I can imagine enormous rows about this setting of financial targets by BT Group as it will surely be the key to the whole thing.

    • NGA for all

      BT can treat this as victory, creating the conditions where a more dominant Openreach and a stronger BT retail separate on BT’s own terms in a few years time.

    • AndyH

      @ NGA – What do you mean by more dominant? It already has a monopoly over the UK telecoms market.

    • FibreFred

      As expected Mark, no mention of investment from the usual crowd, as you say… it won’t meet their requirements – get out of jail free

    • TheFacts

      @AndyH – monopoly??? Cityfibre, VM etc….

    • AndyH

      @ TheFacts – The regulatory definition of a monopoly is different to that of the economic definition. Under UK law, a company with a market share greater than 25% is deemed to have monopoly power.

    • TheFacts

      @AndyH – although VM cover >50% of UK properties.

    • AndyH

      @ TheFacts – It’s not market coverage, but market share. VM have a market share of less than 20% in the UK. See https://www.ofcom.org.uk/__data/assets/pdf_file/0029/55568/section7.pdf

    • NGA for all

      @AndyH – more dominant as in VULA (FTTC-FTTP) v LLU, where LLU assets become redundant and SLU opportunity has been missed or may not have existed. PIA 2 is more long term and business focused.
      BDUK rural work extends that dominance further.
      I am not complaining just stating the obvious, hence the absolute needs to manage the £1.7bn of subsidies in a manner that extracts all it can, and in this context this Ofcom effort was an expensive distraction. Next stop WLA 2017.

    • DTMark

      I can’t see what difference it makes to FTTP investment.

      The issue with other players investing in their own networks is that BT will behave in a predatory fashion, rolling out FTTP everywhere their competitors put new cable in the ground in urban areas.

      The issue with other players investing in the BT network is that you don’t “invest in a competitor”.

      Neither of those factors change unless it is a completely separate entity.

      Coverage only improves, which is to say the company is both “open” and “reaches” (in performance terms) in ways that it never has before, when the objectives of that entirely separate company are set in such a way to achieve this.

    • wirelesspacman

      @ AndyH – “Under UK law, a company with a market share greater than 25% is deemed to have monopoly power.”

      Not correct, you are confusing “monopoly” with “significant”. BT Openreach has “significant market power” not “monopoly power”.

    • AndyH

      @ wirelesspacman – No confusion at all.

      Look at the 1973 Fair Trading Act, Section 6 (http://www.legislation.gov.uk/ukpga/1973/41): a legislative monopoly is deemed to exist where at least 25% of the share of supply of particular goods and services was controlled by one firm.

      As I said, there is a difference between the economic definition and legal definition of a monopoly.

    • wirelesspacman

      Yes you do have confusion – this is Ofcom and it is “Significant Market Power”

    • AndyH

      @ wirelesspacman

      First, it’s Openreach and not BT Openreach. There is no such trading entity as BT Openreach.

      Secondly, the law is very clear as to the definition of a monopoly. It is defined multiple times (1965 Monopolies and Mergers Act, Fair Trading Act 1973 and Competition Act 1998) and the determination in law does not exclude any specific industry. The fact that OFCOM choses to use the term “significant market power” (OFCOM did however, refer to parts of BT being “a monopoly” in their DCR) does not preclude that in the eyes of competition law, BT has a monopoly in the UK in various goods and services.

  3. New_Londoner

    Let’s hope that the inept Ms White and her team are held to account when the costs of the pension burden on the “legally separate ” Openreach become apparent. And let’s hope that the press hold TalkTalk, Vodafone, Sky et al to account for their long awaited billions of pounds of new investment into Openreach.

    (I’m not holding my breath!)

    • “billions of pounds of new investment”

      As above, they only talked about doing that if Openreach were to become completely separated but “legal separation” will not deliver this. Openreach won’t be floating its way onto the market, it’s still under BT’s wing so Sky/TT lose their hope of a quick jump into fibre land. I doubt they would have invested anyway; no concrete plans were ever put forward, just smoke and mirrors.

    • Steve Jones

      If you read the commitments document, OR isn’t going to be the owner of the network, or any future elements of it. They will remain in BT Group ownership.

      In that OR can be involved in any investment made by a third party, it looks like it will be the same as it doesn’t seem to be allowed to own its own assets. It can work with other network investors/owners, but it looks like any such assets will be owned by the third party, albeit that some form of hybridisation with BT Group owned network assets seems possible.

      This new OR is going to be a strange beast. Essentially a management/operation group making network investment decisions on behalf of BT Group within overall financial targets set by BT Group (surely the potential source of future controversy).

      As for contributions to the pension deficit is concerned, then I would assume that it will be based on some principle (and I’ve have though historical employment patterns ought to be the base). For the first time we will then see the actual cash flow element for that, even if Ofcom have never allowed it to be taken into account for OR wholesale pricing). It will affect the availability of funds for investment.

  4. Webbs

    “Is this new Openreach company going to be able to borrow on its own account”

    Legally I ‘think’ Openreach could do so, however if the interests rates offered by BT Group on any potential borrowings would be more favourable that might mean it’s not worth Openreach borrowing from 3rd party lenders.

    • Steve Jones

      If you read a post I’ve put up now I’ve seen the commitments document (which I’ve linked to), OR will not be a network asset owner. All network assets will belong to BT Group, including any future ones, and OR will not be allowed to go to the market to purchase such assets on behalf of its own balance sheet.

      OR is being set-up as an operations/management group, not a network owner.

  5. TheManStan

    @Mark

    Was there any information on who will take on the burden of cost and the time frame for transformation?

  6. GNewton

    @Mark: The article said: ” within an overall budget set by BT Group.”

    How exactly does that work? Does this mean Openreach has no other access to captital markets or investors?

    Also, will there now be less of a regularity burden on the other business units of BT Group?

    • Steve Jones

      Read my latest post. OR will not own any network assets, nor will it be able to purchase them. It will basically manage, operates and invest in the on behalf of BT Group within the financial goals and targets set. It will not be permitted to go to the markets to invest in network assets on behalf of its own balance sheet.

  7. Steve Jones

    I would strongly advise people to read the commitments document. Openreach is going to be a very strange beast indeed. One of the things covered under section 9 is the relationship between OR and the assets it will run, and what the document makes crystal clear is that Openreach is going to be set-up as a management and operations groups for the local network, but it will not own the assets. The network (and IPRs) will remain under the ownership of BT Group and any assets purchased and invested will become the property of BT Group.

    Note that OR will be allowed to work with other network owners in much the same capacity. So, if another company wanted to directly invest in its own network, then it appears it can engage OR to operate/manage if that’s mutually beneficial (which might ease some PIA type issues).

    The commitment can be read here

    http://www.btplc.com/UKDigitalFuture/Agreed/CommitmentsofBTPlcandOpenreachLimitedtoOfcom.pdf

    Section 9 is quite interesting…

    9.1 In accordance with the ASA and the Governance Protocol, BT plc will engage Openreach Limited to manage and operate the Openreach assets described in paragraph 3.5. BT plc will retain legal ownership of the assets (including intellectual property) and all trading (including future assets and trading) that comprises the Openreach LoB from time to time and will retain all of the economic benefits and risks of those assets and trade.

    9.4 Openreach Limited is not permitted to acquire assets and liabilities for its own balance sheet. Where Openreach Limited acquires, sells and otherwise deals with Openreach LoB assets, it shall do so on behalf of BT plc and for the account of BT plc and the necessary actions will be taken to ensure those assets are owned by BT plc.

    • 3G Infinity

      Steve,

      Very correct, BT instructed its lawyers very carefully otherwise it could have become liable to its shareholders for not acting in both their and the companies best interests.

    • GNewton

      Thank you Steve for the clarification.

      It is a kind of an Achilles heel then in this whole deal, and it makes me wonder why Ofcom agreed to this deal. I assume that the whole of the BT Group then remains under the current regulatory framework, doesn’t it?

    • Steve Jones

      @3G Infinity

      Now I read this some more, it looks like it’s a face-saver for Sharon White. Ofcom were always on tricky ground if they tried to make arbitrary decisions about privately owned assets and there would not only have been the problem of getting it through the EU Commission (with intense lobbying against it be interested groups, like DT – who have several reasons to be concerned), but also the extremely likely prospect of legal action by BT shareholders and the pension trustees. I suppose she could have waited a couple of years to see if the EU Commission was no longer a factor, but I doubt that’s a tenable option to sit on your hands for that time.

      As it is, I don’t see it changing commercial case, but we might see some more transparency on things like cashflow for pension deficit funding from OR.

    • adamjarvis

      I might be reading this wrong, be there is nothing to stop Openreach leasing assets from another Telco, as I read it.

      The newly formed Openreach will have to put out to tender each local loop, for cost comparisons “value for money” assessment with alt-net providers/contractors v. roll out of further Copper Based G.fast technologies/continued leasing of BT Copper Pair Assets i.e. G.fast, as I see it.

      The Elephant in the room is that the new legal status of Openreach is in direct conflict with the current plans to rollout 10m “connnected” openreach customers with Copper Based “up to” G.fast Technology, because this disadvantages other Telcos, from rolling out their own Copper based FTTC/Vectoring technologies.

      As posted elsewhere in comments here:
      http://www.independent.co.uk/news/business/news/bt-ofcom-openreach-separation-broadband-competition-concern-a7621876.html

      The Important “convenient” point that Ofcom seems to have missed, is you can’t have two or more Telcos running FTTC/Vectoring using PIA access rules (Physical Infrastructure Access to Ducts and Poles) on the same local loop.

      This gives BT Group unfair advantage in continuing to allow BT to roll out G.fast to 10 million “connected” customers which is in complete conflict with new legally separate status of Openreach, which is meant to serve all its customers equally/fairly.

      WarwickNET (as an example-I have no link to them) has rolled out FTTC (Fibre to its own cabinet-Hybrid Copper Fibre) using the BTOpenreach access rules of PIA to ducts and poles, but (importantly) also has implemented newer vectoring technology (one of the first Telcos to do this).

      Where WarwickNET has done this already, they effectively “own” that local loop in terms of “cheaper” FTTC/G.fast technologies. No other Telco (including BT) can then roll out G.fast Technology within the same local loop, because of the interference issues between two lots of competiting G.fast/vectoring technologies.

      There is no equipment – Huawei etc, out there that syncs the signals of competing FTTC/Vectoring/G.fast based equipment within the same local loop, to allow the two Telcos equipment/signals to work side by side.

      You can’t physically have two different Telco operators installing their own copper based FTTC/Vectoring technologies with the same single local loop, one will interfere with the other.

      Whoever installs FTTC Vectoring Technology/G.fast first prevents any other Telco from using the same type of hybrid copper technology.

      In those situations, the only way the second Telco can compete is by rolling out (expensive-in BT’s own words) pure FTTP. The second Telco wouldn’t be able to use (cheaper-in BT’s own words) technologies and PIA access to Poles/Ducts to use the existing copper technologies, connected to their own equipment.

      Hence why BT wants to move quickly to get FTTC Vectoring/G.fast in place, before the Regulator Ofcom realises its massive “Elephant in the Room” mistake.

  8. 3G Infinity

    “Will an Openreach run by an independent board suddenly see an economic case for investing billions more in fast fibre broadband connections right into homes when BT did not? That seems doubtful.” – from Rory Cellan-Jones.

    The Board will work to a new Articles of Association, their remuneration will be tied to them “meeting the legal requirements to serve all customers fairly”. That would suggest it is not in their individual pay-packet interests or their responsibilities as Directors to say “allow a 3rd party to put investment on the table for a new service UNLESS that new service is available to all customers on fair basis”.

    So unless Sky, TalkTalk, Vodafone and BT all agree on a new investment – that’s the only way it would be fair for all customers, it is likely not going to happen.

    • TheFacts

      ‘Sky, TalkTalk, Vodafone and BT all agree on a new investment’

      and the other ~100 ISPs?

    • TheManStan

      If OFCOM fluffs the wording of regulations regarding this aspect it’ll be amusing… in theory 1 ISP customer could veto any proposals… instead of progress there would be be stagnation…

  9. FibreFred

    I find it interesting how this is being reported by the BBC, stating that BT has bowed to pressure from Ofcom to split Openreach off.

    If you look at what BT had self proposed (much of if implemented already) is it much different to this split?

    They had already put in place an new board, it could already make its own investment decisions etc etc

    I don’t see this as much different really, surely its just a legal formality?

    • Steve Jones

      From reading about the new BT Chairman, it appears he will be very happy to see Ofcom claiming this as a win.

      In the meantime, we have an announcement that in Germany the Federal Government is going to bankroll a 100bn Euro investment in a national gigabit network in combination with the private sector (which I think means DT). According to the Register, the federal government already invests 4bn euro a year and are going to up that by a further 3bn euro. If so, it rather puts BDUK into the shade (and it also emphasises the very tight relationship that exists between the German state and their national champions).

      Compare and contrast with the UK…

  10. Steve Jones

    @TheManStan

    OR already have to decide on what products to invest in against competing requirements. It’s already meant to be done on commercial grounds without bias to BT Group. So an ISP with a few thousand customers might want a new product which only they are likely to use. If the business case for the investment doesn’t make sense, then OR don’t have to do it.

    I think, in reality, it will be much the same. Investment decisions will be made on commercial grounds and, as long as they aren’t obviously discriminatory, then that will be fine. Of course what you can expect before too long is the normal suspects will be complaining.

    nb. one thing that I think Ofcom might make use of is the ability to have a more direct line to OR without it being mediated by BT Group. There’s a bit more freedom for nudges and winks from the regulator.

  11. wirelesspacman

    Having had a quick read through the link that Steve Jones kindly provided, two words spring to mind: breakfast and dogs 🙂

  12. MikeW

    All in all, this looks like something *very* close to what BT had proposed, and started to put into place.

    The one extra leap they have made is with the legal separation … but it is a separation of management control only. But not governance (which BT had put in place anyway). The ownership of the assets, to which any investment would naturally be tied, stays with BT.

    It looks to me like a face-saving adjustment so that everyone can claim a win-win agreement.

    In all this, I was looking for something that would alter the big picture for future investment. I’m not sure I’ve found it here, except for one little aspect … that Openreach could end up being the operations department for other network owners. I wonder how that might play out over the next decade.

    Otherwise I agree with Mark. This makes no real change for the rollout picture in the near or middle term.

    • FibreFred

      Agreed face saving, like I said I cannot see much difference to what BT were already putting in place themselves

    • Steve Jones

      To make a fundamental change (rather then the odd one or two hundred million a year) would require a radical change to the economic framework and incentives. Ofcom have done precisely nothing to change that due, not least, to the way their regulatory and pricing regime works.

      It’s interesting that the German Federal Republic has decided on a massive joint state/private investment for a national gigabit network. The appear to be lumping in everything into the pot, including 5G and adding it all up together, but it’s quoted at a 100bn Euro investment over 8 years and the Federal Government appears to be planning to go from the 4bn Euro they are currently putting in annually for under-served areas and to 7bn euro a year. That’s simply and astonishing amount of money when you look at the BDUK project. It’s quoted as 20bn Euro of state money (which dwarfs when the UK is prepared to do) and 80bn of private investment (about 10bn Euro a year). I’d not sure how that compares to UK private investment if you add them all together. OR & VM combined might get close to £2bn a year. The mobile combined might add another £2bn. Perhaps, with altnets, it might get to 5bn euro (not pounds) a year, and not all of that will be 5G.

      Whether or not the German investment is an economically efficient investment is another matter. However, it’s in stark contrast with what the UK government is prepared to do. You can also guarantee that the German Federal Government isn’t going to put Deutches Telecom through the organisational ringer.

      http://www.dw.com/en/germany-to-invest-100-billion-into-national-gigabit-internet-network/a-37846238

    • MikeW

      That German rollout looks interesting…

      A consortium:
      “The rollout would be funded by a government and private consortium […] which includes most major telecommunication firms in Germany.”

      So the trick is to organise a grouping that works together, rather than one that despises each other. Australia went for NBN, while Germany leaves the players in place. Ofcom, meanwhile, want competition to keep everyone fighting.

      Money:
      “the 100 billion euros would be made of 80 billion from industry and 20 billion from government.”

      If German industry is putting the money in, then the end result is that customers pay for it. A way to get the best infrastructure, even if people have to pay more for it.

      Ofcom, meanwhile, want to aim at the cheapest prices.

    • Steve Jones

      @MikeW

      That’s pretty well my reading of it. The German government favours a more cooperative model whilst the UK government puts its faith into putting as much competition as possible as low down the value chain as possible. I’m not sure how the German federal government regulates wholesale pricing, but I would not be surprised to see that it includes an element which facilitates and incentivises NGA investment – which our pricing regime does not.

      I don’t particularly blame Ofcom as such; they are working to a government brief and, presumably, those chosen to head the outfit have been picked on that basis.

      Unfortunately the economics breaks down when you just end up with fragmentation of network revenue, which makes the business case infrastructure network investment even less promising. That became clear with Ofcom’s opposition to rationalising down to three mobile operators.

      I know some people put their hope in altnets, and I’m sure they are very nice for those that benefit, but it’s difficult to see how a country will get comprehensive cover on a patchwork of different networks with different operators and standards which becomes almost impossible to deal with for any national retail operator (that’s if there are wholesale offerings).

      In any event, even though the private sector in Germany is going to carry most of the investment load, the 20 billion Euro they are providing absolutely dwarfs the UK’s BDUK programme.

      I suspect the rest of the 80bn Euro is the sum of all the network operators’ plans for pretty well everything over the next 8 years. Even then, 100bn Euros is a suspiciously round, headline number.

  13. Darren

    Got to laugh at VM. How fast is your upload speed again? How many times slower than BT!

  14. Lowly-minion

    I work for Openreach. Yesterday was quite confusing, with lots of mixed messages from many different sources. May I just thank everyone on this site for the extraordinarily clear analysis in the comments section here. I have learned more here than I have in the various press releases from both Ofcom, and BT. I have one question if I may, please: does anyone know how much money BDUK is investing per year, and over the entire life of the program? I have looked online, but there seems to be lots of hyperbole from government, but very few figures. It seems to be an interesting contrast to both the NBN in Australia, and the German government’s new proposals. Many thanks in advance for any advice you can offer.

    • Steve Jones

      I’m glad you find the comments informative. Often I’d say more heat than light is generated. As far as how much money BDUK is spending, then this site and Think Broadband publish regular update stats on that and, up until December 2016, the central BDUK project had provided, in total, grants of £513,598.393 to the local projects.

      However, it’s extremely important to note that in order for the local projects to be granted this money, the relevant local authorities had to commit to “match funding”. I take that as meaning that the amount of public money involved is double that. Even then, it’s not that simple. The amount above is what has been granted to the local projects and that is likely to be somewhat ahead of payments the local projects make to their contractors (which is overwhelmingly, but not wholly, BT). Another complication is that the contractors are only paid after work has been completed and accepted which means there is more to be paid out which is in the pipeline. Whether or not that is included in the grants which have been made to the local projects or not, I’ve no idea.

      There is also a further complication, and that’s the so-called “gainshare” process whereby if take-up is higher than what has been used in the business case projections in the bid, money is returned to the local projects for reinvestment, as are any efficiency savings from implementation. As it is, the take-up rate has been much higher than BT put into their bids and the company has put aside something around the £350m mark to repay to local projects, and that might yet go up. In theory the local projects can just leave the money around and return it to the public purse after the project is complete (which I think is 7 years after it was signed). The current indications are that the great majority of projects will choose to reinvest and several have announced plans already.

      So, that doesn’t really answer your question, but from reading the NAO reports it looks like BT will eventually receive about £1.2bn from both central and local government for the BDUK programmes (including the Welsh and Scots devolved programmes). Half of that will be from central government. You could add to that the Superfast Cornwall BB programme and the Northern Ireland programme, both of which predate BDUK. The Superfast Cornwall programme received about £60m of (mostly European Regional Development) funding. I’m not sure of the NI public funding amount save that it’s in the few tens of millions of pounds.

      The Australian NBN programme is on a wholly different scale and methodology. It’s not really comparable to BDUK in the way it’s structured as, in effect, it is to build the network operations equivalent of a Railtrack. That is a not-for-profit company designed to operate and resell a wholesale network service. A great deal of money has had to be spent in compensating the national operator Telstra for the loss of wholesale revenue as the state-backed NBN is built out. Such a model would also be very expensive to adopt in the UK too, as compensation would have to be paid to existing operators.

      NBN has also had to scale back its plans. Originally it was to be FTTP apart from those truly remote areas to be served by satellite and wireless. Now it’s a combination of FTTC and FTTP.

    • MikeW

      Just to add to Steve’s post…

      The generally publicised figure for the expected total of public subsidy through BDUK is £1.7bn, though obviously not all of it has been spent (as a work in progress) or even contracted (tendering is still in progress).

      The government regularly mentions this total in their press releases. For example…
      https://www.gov.uk/government/news/440-million-broadband-boost-to-benefit-more-than-half-a-million-premises

      That release gives some details related to a variety of gainshare/clawbacks: Underspend of around £150m, and “high take-up” clawback of £292m. Not all of this clawback will be being re-spent with BT, though. Some of the projects are beginning to consider other providers (eg Gigaclear) and other technologies.

      The original intention of the £1.7bn was to reach 95% of the premises in the UK with superfast speeds (though some of it was budgeted to getting 2Mbps to everyone). The clawbacks seem likely to get the superfast total to 97% instead.

      One of the most recent BDUK status updates can be found here:
      https://www.slideshare.net/INCA_NextGen/central-superfast-presentation-bduk

      There, they say

      Mixture of coverage beyond 95% achieved through Phase 2, BDUK gainshare, commercial rollout and USO.

      Final c1% likely to require wifi and high-speed satellite.

    • Fastman

      I think it highly unlikely you work for Openreach as If your a significant number of ways you can ask that information / and there are certain information you would have received around the announcement

    • Steve Jones

      @MikeW

      We keep hearing various figures like £1.7bn or £1.8n (especially from the likes of Margaret Hodge who, when in charge of the PAC was fond of claiming that’s what BT had received), but I don’t see much evidence supporting that number. It would be nice, for once, if the Government would set out exactly what budget is available to be spent out.

      What doesn’t help is that the government make headline statements like “additional £129 million boost for nationwide broadband rollout”. Which, was just £129m of gainshare/efficiencies being achieved for reinvestment where the casual reader might have assumed it was new money – you have to go into the detail to find it is not. That sort of multiple announcement of government expenditure is, of course, not exactly confined BDUK though.

    • MikeW

      I think the government’s calculation of £1.7bn was predicated on councils’ meeting the matching criteria.

      However, the funding for phase 3 (or phase 2 extensions) seem to suck in fresh central government funding, but then match it with money returned from gainshare as though that were all fresh money from the LA.

      That’s patently not true, but LAs seem to get away with it.

      It does mean that some fraction of the £1.7bn is getting double-counted. And double-counting £440m has an effect!

    • GNewton

      I have seen posters mention the Australian NBN.

      The original Labour designed version of NBN was a good idea, good value for money. It was a plan to mainly use FTTP, and wireless for remote areas. After a change of government, it was overthrown by the new Coalition government, and then replaced with a MTM version, which basically included multiple existing technologies, including old hybrid cable from Optus, FTTC VDSL, and, where available from the original NBN, fibre broadband. The current version of the NBN is a disaster, and it is repeating most of the errors we see in the UK with its BDUK projects. And the current NBN will cost the Australian taxpayers more money in the long run.

      New Zealand by contrast has chosen a better approach: Its government is funding two broadband expansion initiatives, with the aim of providing fibre to the home of 80% of the population by 2019. It is a NZ$1.35 billion budget of public-private partnerships with Chorus and three local electricity network companies to roll out FTTP. It is interesting to note that, unlike Openreach, the New Zealand counterpart Chorus was genuinely separated from the former Telecom New Zealand in 2011 and is a real independent company, with its own network assests.

    • MikeW

      Whatever the original NBN plan was, it was hard to describe it as good value for money. When costs turned out to be twice as high as budgeted, it was clear it wasn’t all quite as rosy as the government of the time were promising. The rollout had stymied, with embarrassing arguments with contractors, and too many unserviceable premises.

      In fact, it is best described as going off the rails. A good presentation from Simon Hackett (a RevK-like founder of an ISP in Australia):
      https://simonhackett.com/2014/09/06/rebooting-the-nbn/
      Look especially for the “Stuff was already broken” slide.

      Now, it has the multi-technology slant, sure. But does that make it a disaster? Hardly … as the paying public aren’t choosing to put heavy demands on the technology: Around 50% are choosing 25/5 Mbps packages, and 30% are choosing 12/1 packages.
      https://postimg.org/image/7sa4fh63b/

      It won’t cost the Australian taxpayers, either, because the government require a profit to be made, and intend to sell it off once built. As part of this, it appears to have a relatively high cost per Mbps built into the future costings.

    • GNewton

      @MikeW: OK, take a look at Turnball’s NBN shambles: The budget rose from $29.5 billion before the 2013 election to $41 billion following the Coalition government-commissioned Strategic Review, and then to a range of $46 billion to $56 billion as of August 2015. Still rising. Quigley (from the original NBN) told the news media he stood by the last peak funding estimate under his tenure of $45 billion published in 2013.

      As a matter of degree, the original NBN were only a year behind, and only a few billion over-budget, on their own figures. Australia could have been nearly done by now had they followed through with the original NBN plan.

      By comparison, the approach taken in New Zealand was a much better one.

    • MikeW

      Did you listen to Simon’s presentation around that “Stuff was already broken?” From a networking professional that was part of fixing the broken stuff?

      Your second paragraph suggests you didn’t bother.

  15. jon

    Fastman,

    internal comms have been terrible for letting us know any information. just PR crap.

    • Fastman

      really !!!!! I was under the impression that a formal broadcast to all people in openreach was issued on Friday morning

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